Wang v. Merrill Lynch Credit

Filed 7/18/07 Wang v. Merrill Lynch Credit CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Plaintiffs John G. Wang and Marcia Y. Wang appeal from an order enjoining them from prosecuting claims against Merrill Lynch, Pierce, Fenner & Smith (ML) and its agents, following the entry of a settlement agreement with Merrill Lynch Credit Corporation (MLCC). We perceive no error and shall affirm.

Background

In October 2004 the Wangs[1] filed a complaint against MLCC and Yuchia Lin,[2] their securities broker at ML, alleging misrepresentations and omissions made to induce them to obtain an ML Mortgage 100(SM) loan which is a 100% mortgage loan vehicle secured by the securities in the ML account and the real property. In connection with the purchase of a new home, the Wangs alleged that they were induced to forego a conventional mortgage, which would have required them to liquidate securities held in their ML securities accounts to obtain the funds for a down payment, in favor of a 100% mortgage loan from MLCC, which required no down payment. Lin and other agents of MLCC allegedly misinformed them that such a loan was a conservative long-term investment and failed to advise them as to the inherent and significant risks involved in such a loan, such as the increased margin created by the [loan] and the fact that margin calls could occur that must be covered by Wang or the securities pledged as collateral would be liquidated under conditions unfavorable to Wang. The loan closed in April 2000. Margin calls began in October. Despite Lins and MLCC agents continued representations that the losses to Wangs account and the margin calls were the result of normal market fluctuations and were typical of other clients with the ML Mortgage 100(SM),  the complaint continues, the Wangs could no longer afford to continue to cover the continued margin calls in order to prevent forced sale of their investments and in January 2001they refinanced and paid off the ML loan. The Wangs maintained their securities accounts at ML until January 2003, during which time there were further losses in the accounts which the Wangs attributed at least in part to the manner in which the accounts were managed when they served as security for the 100% mortgage loan. The complaint sought to recover the losses in the securities accounts.

At a judicially-supervised settlement conference on January 9, 2006, a settlement was reached. There is no transcript of those proceedings, but the original minute order reads in part: Plaintiffs agree to accept the settlement amount on behalf of the defendant in full settlement of any and all claims arising out of this action. Plaintiffs agree to sign a full written release prepared by defendant. . . . This agreement is enforceable under CCP 664.6. In the course of preparing the written settlement agreement, a dispute arose as to whether the settlement applied to ML and Lin, in addition to MLCC, and MLCC brought a motion to enforce the settlement under Code of Civil Procedure section 664.6. The motion was heard before the settlement judge on April 7, 2006, at which time the court amended the minutes of the January 9 proceedings to read that the plaintiffs agreed to accept the settlement amount on behalf of the defendant in full settlement of any and all claims involving the events giving rise to this action. Thereafter, on May 8, the Wangs signed a Confidential Settlement Agreement and Release of Claims between themselves, on one hand, and MLCC and non-party [ML] on the other hand. Paragraph 8 of the settlement agreement reads as follows: Plaintiffs hereby fully and finally release, acquit, and discharge MLCC and [ML] and any and all of their past, present and future . . . agents [and] employees . . . from any and all claims . . . of any kind or nature whatsoever, whether or not now known or unknown, suspected or claimed, asserted or unasserted, matured or unmatured, fixed or contingent, which the plaintiffs ever had, now has, or may in the future claim to have against MLCC or [ML] (whether directly or indirectly) from the beginning of time involving the events giving rise to this action. The record reflects that the settlement check was tendered to the Wangs and they do not dispute that it was accepted and cashed.

However, before signing the written settlement agreement on April 18, 2006, the Wangs filed a Statement of Claim against ML and Lin with the National Association of Securities Dealers, Inc. (NASD). The claim alleges the entry of the 100 percent mortgage in April 2000, the refinance in January 2001, that [s]ubsequent to the refinance, LIN, and other representatives of [ML] advised claimants that claimants accounts were required to remain invested with the identical money managers that were in place at the time claimants refinanced their mortgage in January of 2001, that the funds could not be moved as a result of particular money managers utilized, which caused the Wangs to suffer[] losses to their accounts, and that from January of 2001 through and until claimants [ML] accounts were closed in January of 2003, LIN and other representatives of [ML] failed to account for claimants investment objectives, provided advice which fell below that standard of care for a professional broker and otherwise mismanaged claimants accounts.

MLCC brought the new proceedings to the courts attention and requested that as a means of enforcing the settlement agreement the court enjoin the Wangs from prosecuting the NASD or any other action. The Wangs responded that MLCC was seeking to expand the scope of the settlement entered into regarding the present action solely against MLCC to include any and all liability against separate entity [ML] for events which took place long after the events giving rise to this cause of action. After a further hearing, the court entered an order on June 13, 2006, which found that the settlement agreement was intended to, and did, effect the full settlement of any and all plaintiffs claims involving the events giving rise to this action . . . [which] include, but are not limited to, any and all claims that plaintiffs brought or could have brought in the action in connection with the matters at issue in the action in regard to the MLCC mortgage and/or their [ML] securities accounts that were at issue in the Action, including but not limited to any and all claims related to any restrictions on the [ML] securities accounts which were imposed in the April 2000 - January 2001 timeframe (including any and all claims that plaintiffs allegedly could not sell their securities or move any funds or securities out of or to one or more securities accounts), even if those claims relate to losses plaintiffs suffered after January 2001 [and] any and all claims related to the management of the [ML] securities accounts during the April 2000-January 2001 timeframe, even if those claims relate to losses plaintiffs suffered after January 2001. The court therefore enjoined the Wangs from further prosecuting the NASD or any other action that in any way, shape or form involv[es] the events giving rise to this action (including, but not limited to those set forth . . . above) and . . . to dismiss any such action or to amend the action to comply with this order, including the NASD Action, to the extent that any such action makes allegations or claims that have been enjoined by this court.

The Wangs filed a timely notice of appeal from this order.

Discussion

We agree with the Wangs that the June 13 order should be regarded as having been entered pursuant to Code of Civil Procedure section 664.6 and should be tested by the standards that apply to such an order. However, we find substantial evidence to support the courts findings concerning the scope of the settlement agreement (Osumi v. Sutton (2007) 151 Cal.App.4th 1355; Conservatorship of McElroy (2002) 104 Cal.App.4th 536, 544), which is the focus of the Wangs appeal. The Wangs do not dispute the authority of the court to enjoin them from prosecuting another action in violation of the terms of the settlement agreement if the scope of that agreement has been correctly determined.

The Wangs contend the trial court misconstrued the scope of the settlement in essentially two respects. First, they dispute that the agreement reached during the course of the judicially supervised settlement conference was intended to apply to non-parties, i.e., to ML and to Lin. They insist that the agreement was not intended to require the release of claims that they could not have brought in the action below and which do not relate to the action below. (Italics omitted.)

This contention misses the mark for many reasons. Initially, it is not correct that the claims against ML and Lin could not have been brought as part of this action. Indeed, Lin was named as a defendant in the original and first amended complaint. According to the Wangs, Lin was dismissed as a defendant when counsel was advised that any dispute with her (and presumably with ML) was subject to an arbitration agreement. Assuming that to be true, the fact that any claim against those parties might have been stayed to permit the claim to be resolved in arbitration does not mean that the claims against those parties could not have been included in the complaint against MLCC.[3] In all events, it matters not whether the claims could have been asserted against ML and Lin in this action. What is significant is whether the settlement agreement was intended to encompass a release of claims against them. A settlement agreement may of course extend to persons and entities that are not parties to the litigation. (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 558-559)

There is no doubt that the release here extends to ML and to Lin, one of its agents. Both attorneys who attended the settlement conference acknowledged that when the agreement was being recited by the court, they confirmed to each other that the agreement applied to all Merrill Lynch entities. The Wangs assert that this was a misunderstanding on the part of their attorney and that they never intended to release ML.[4] Nonetheless, following the April 7 hearing the Wangs executed the written settlement agreement to which ML is a named party and signatory and which expressly releases claims against ML and its agents and employees. The Wangs suggest that they signed this agreement because they felt compelled to do so by the courts April 7 order. However, if the Wangs questioned the courts ruling, they should have sought appellate review. They were not free to sign the written agreement, accept the settlement proceeds, and then dispute the terms of the settlement agreement. (Civ. Code,  3521 [He who takes the benefit must bear the burden]; In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 751-753; Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 789.)

Secondly, the Wangs contend that the trial court improperly enjoined them from pursuing claims based on mismanagement of their securities accounts unrelated to their ML mortgage and subsequent to its refinancing in January 2001. As all parties and the court below recognized, the broad release in paragraph 8 of the settlement agreement is qualified by the phrase, involving the events giving rise to this action. The injunction entered by the trial court was carefully drawn to honor this qualification. The Wangs were not precluded from pursuing unrelated claims against ML or Lin. The injunction order expressly recognizes the possibility that they might be able to amend their Statement of Claim before the NASD to allege only misconduct independent of their allegations concerning the ML mortgage. The courts order did define the events involved in the current litigation to include assertedly placing restrictions on the ML securities accounts between April 2000 and January 2001. The Wangs claimed that these restrictions were imposed as a consequence of the ML mortgage and contributed to the losses they were seeking to recover in this action.[5] Thus, these claims were within the scope of the litigation and of the release, whether damages were suffered before or after the Wangs refinanced in January 2001. The release applies to claims and damages whether or not now known or unknown, suspected or claimed, asserted or unasserted, matured or unmatured, fixed or contingent, which the plaintiffs ever had, now has, or may in the future claim to have . . . .

The Statement of Claim that the Wangs filed with the NASD alleges that they obtained and refinanced the ML 100 percent mortgage and that ML advised them that their accounts were required to remain invested with the identical money managers that were in place at the time [they] refinanced their mortgage in January of 2001. Although the Statement of Claim alleges inadequate investment advice in general, the Wangs have not articulated any specific inadequacy or misconduct by ML or Lin unrelated to the ML mortgage that the courts order prohibits them from pursuing. The order does not prevent them from prosecuting any claims that fall outside the scope of the release contained in the settlement agreement.

In short, substantial evidence supports the trial courts interpretation of the scope of the settlement agreement, and the court did not abuse its discretion in enjoining the Wangs from breaching that agreement.

Disposition

The order of June 13, 2006 is affirmed.

_________________________

Pollak, J.

We concur:

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McGuiness, P. J.

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Siggins, J.

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[1] In the original and first amended complaint, John Wang was the single plaintiff, but Marcia Wang was added as a plaintiff in the operative second amended complaint.

[2] As discussed below, Lin was dropped as a defendant from the second amended complaint.

[3] We need not consider whether the failure to have included Lin and ML in the complaint would preclude the filing of a subsequent action against them under principles of res judicata, a subject to which the parties devote considerable attention.

[4] The trial judges recollection of the discussions at the settlement conference casts considerable doubt on the credibility of this assertion. At the April 7, 2006 hearing, the judge stated, I recall these discussions. They were rather protracted. I had no reason to believe Mr. Wang did not understand that this was a full and complete settlement of any and all claims arising out of those events. And I think I got that affirmance, and not only do I think, I know I got that affirmance from Mr. Wang in open court that he understood that.

[5] Indeed, the first amended complaint included a cause of action against MLCC and Lin for breach of fiduciary duty which alleged, among other things, that Lin, MLCC, or its agents, further breached a duty to Wang by initiating account transfers not authorized by Wang subsequent to Wangs refinancing of the Mortgage 100(SM).  These allegations were repeated in the second amended complaint, in which Lin was not included as a defendant.